NCPA - National Center for Policy Analysis

Partial Privatization Of Social Security Has Been Proven Elsewhere

August 2, 2001

Political observers were astonished at the out-of-proportion reaction of foes of Social Security reform to the interim report of the president's Social Security commission. The foes -- mostly liberal Democrats and labor leaders -- paid little attention to the substance of the report, reformers say. They focused, instead, on the proposal to add individual investment-based personal retirement accounts.

But such a mixed system has been tried elsewhere -- often at the instigation of liberal governments.

  • Sweden, the leading welfare state in Europe, allows employees to shift a portion of their tax payments -- equal to 2 percent of earnings -- into individual investment accounts.
  • Australia had a Labor government in 1986 when it shifted from a pure pay-as-you-go system to a mixed one with personal retirement accounts invested in stocks and bonds.
  • Germany's Social Democratic government recently announced legislation to reduce future pay-as-you-go benefits, but allow individuals the opportunity to increase total benefits through personal investment accounts.
  • And Britain's Labor government has shown no interest in reversing the shift to a mixed system put in place by Margaret Thatcher.

Reform proponents point to other such examples around the globe. They say that such examples illustrate not only that mixed social security pension systems are technically feasible -- but also that they have been attractive to left-of-center welfare states as well as politically conservative regimes in countries such as Chile.

Source: Martin Feldstein (Harvard University), "Democrats Play Politics with Social Security," Wall Street Journal, August 2, 2001.

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